Open banking has emerged as a major phenomenon across the globe, promoting data openness and innovation in payment services. Major economies including the European Union and the United Kingdom have required banks to open up their account information to fintech firms, while strengthening personal data protection. In Asia, Singapore, Hong Kong and Japan have launched open banking schemes.

Embracing the global trend, Korea unveiled its open banking initiative in February 2019 (click to see press release) to open up financial payments networks and promote innovation in the financial sector. In the same year, open banking was pilot-launched on October 30 and became fully operational on December 18, with 50 institutions (17 banks and 33 fintech firms) participating currently. In the near future, more fintech firms are expected to join after completion of security tests.

Key Features of Open Banking in Korea

STRUCTURE
Korea’s open banking system operates on a joint platform which does not require participating banks and fintechs to form individual partnerships. The Korea Financial Telecommunications & Clearings Institute (KFTC) acts as an operator which connects participating members – banks or fintechs – to the banking networks through the joint platform. Once logged on the platform, it will automatically provide participating banks and fintechs access to the networks without individual partnerships.
PARTICIPANTS
All 18 banks (with Kakao Bank expected to join in H1 2020) are participating in open banking, not just as providers of account information but as active users of the system. The open banking system is open to big fintech firms as well as smaller ones to promote a wider usage and facilitate further advancement of the payment sector.
SERVICES
Open banking offers six APIs for enabling core banking services as follows

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API type Services
Read APIs
(account information services)
1. account balance
enabling a customer to check balance at his/her own bank accounts
2. transaction history
enabling a customer to check transaction history with his/her accounts
3. account holder’s real name
enabling open banking service providers to access a customer’s account information to verify the validity of the account and identify the account holder’s real name
4. remitter’s information
enabling a customer to check the remitter’s name and account number
Read APIs
(wire transfer services)
5. debit transfer
enabling open banking service providers to collect money from a customer’s account
6. credit transfer
enabling a customer to withdraw money from his/her bank account and credit it into another open banking service provider’s account
Compared to open banking services in other countries, Korea’s open banking takes a step further by providing not just read APIs but also write APIs, enabling wire transfer functions.
LOWER FEES
The open banking system lowers fees for fintech firms to use the banks’ payment network to 1/10 of the previous level (1/20 for smaller fintech firms).
APPLICATION & SCREENING
Applicants are allowed to participate in open banking after screening and security checks.

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1. Registration
Applicant submits application to the Korea Financial Telecommunications & Clearings Institute (KFTC).
2. Screening for applicability & approval
KFTC determines applicability and grants approval after checking requirements, such as eligibility, adequacy of business model, legal requirements, etc.
3. Service development & test
Applicant develops fintech services and tests for viability. KFTC conducts final assessment on services.
4. Security check & vulnerability inspection
Financial Security Institute conducts inspection of security system on overall operating environment and application vulnerability.
5. Sign agreement
KFTC and applicant sign a service agreement after final review on submitted documents, fee determination, etc.

6. Access open banking

SYSTEM RELIABILITY AND SECURITY
In order to ensure the reliability of the system and information security, the government has upgraded the operating system from 4TB to 60TB and set up a 24-hour Fraud Detective System (FDS), through which the KFTC will closely monitor fraudulent activities and automatically shut down suspicious transactions.
Also, the Financial Security Institute will thoroughly examine whether open banking service providers have set up an effective security management system within their firms.
CONSUMER PROTECTION
To minimize damages inflicted to consumers in the case of financial accidents, the daily total withdrawal amount from all banks is limited to KRW10 million. Open banking service providers are also required to have financial guarantee insurance in order to promptly compensate for damages in the case of financial accidents.

Expected Outcomes

To minimize damages inflicted to consumers in the case of financial accidents, the daily total withdrawal amount from all banks is limited to KRW10 million. Open banking service providers are also required to have financial guarantee insurance in order to promptly compensate for damages in the case of financial accidents.

FINANCE AS A WHOLE
Open banking will encourage competitive cooperation in the financial sector, tearing down barriers among banks, or between banks and fintechs, which will reshape the financial services landscape and bring more dynamics in the financial ecosystem.
BANKS
The transition to ‘banking as a platform’ will be accelerated with virtually every person being their potential customer. Under such a platform model, banks will directly compete with fintech firms to acquire or maintain customers through multiple channels, while providing innovative solutions in partnership with fintechs.
FINTECHS
Open banking will lower barriers for fintech firms as it lowers cost burdens and allows easier access to payment networks.
CONSUMERS
Consumers will be able to access a wide range of financial services from payment to money transfer to loans to spending pattern analysis to product comparisons using a single platform.

Beyond ‘Open Banking’ & Toward ‘Open Finance’

The government will further develop open banking into open finance with scalability and flexibility

1. Expanding the scope and functions of open banking services
The government will extend the scope of financial institutions participating in open banking to include non-banks – e.g. savings banks, mutual finance business and post offices. The functions of APIs, currently limited to balance inquiry and transfer transactions, will also be widened to provide more diverse services, enabling a more comprehensive asset management via open banking. The government will lay the groundwork to create synergies with MyData and electronic finance businesses.
2. Ensuring safety and security in open banking
The government will ensure stable and secure operation of open banking system with thorough security checks and safety measures such as daily withdrawal limits and insurance coverage requirement for damages from financial accidents.
3. Establishing legal ground for open banking
The government will ensure stable and secure operation of open banking system with thorough security checks and safety measures such as daily withdrawal limits and insurance coverage requirement for damages from financial accidents.

Open Banking: Frequently Asked Questions

The FSC has prepared frequently asked questions to help visitors better understand about the open banking system in Korea.


Q: South Korea has opened the first phase of open banking. How has this progressed?

A: In the late 2010s, digital innovation took place most prevalently in the payment sector.
To bring our financial innovation up to global standards, the Financial Services Commission announced on February 25, 2019 its plan to establish an innovative infrastructure in the financial payment sector. Within an 8-month period since then, we were able to establish an open banking system through close cooperation with the banking sector, fintechs and the Korea Financial Telecommunications & Clearings Institute. Open banking was pilot-launched in October 2019 in the banking sector during which we tested the stability of the system. Since December last year, open banking in Korea became fully operational with fintech firms also participating.
As of now (February 3, 2020), more than 17.1 million people signed up to use open banking with about 30.2 million accounts registered. All 18 banks have opened up their customer account information and 50 institutions (17 banks and 33 fintechs) are now providing open banking services using the account information made available by the banks.

Q: Why did the FSC decide to adopt open banking? Will it be a regulatory requirement to use open banking, or will it be left to the choice of the financial institutions?

A: The Financial Services Commission introduced open banking to boost the competitiveness of the financial industry and also to improve consumer convenience by encouraging and sparking innovation in the payment industry. First, the FSC began to pay closer attention to innovative global trends prevailing in the payment sector.
The EU, the UK and Japan have required financial companies such as banks to open up their payments networks and data to fintechs through PSD2 (the revised Payment Services Directive), the Payment Services Regulations and the amended banking act, respectively. Through these measures, these countries have propelled the drive for innovation by encouraging cooperation and collaboration among financial companies and between financial companies and fintechs.
Korea’s traditional payment system revolving around banks, however, had limits for fintechs in providing payment and money transfer services. Also, banks could only provide banking services to their own customers. As such, there were growing concerns about Korea falling behind in a recent move toward open innovation. Fintech firms also demanded a more level playing field. Financial consumers were experiencing inconvenience as they had to download multiple banking apps to access services from individual banks.
Now, Korea has open banking system, which is made available through voluntary participation of the banking sector and the Korea Financial Telecommunications & Clearings Institute. The system is running smoothly thanks to agreement between the institutions, although the FSC recognizes that innovation in the financial payment sector needs to have both continuity and stability in the long-term. To establish a legal foundation for open banking, the FSC has been pushing for an amendment to the Electronic Financial Transactions Act. Taking examples from the cases of major economies, we plan to make it compulsory for banks to provide standardized money transfer functions to payment businesses.

Q: How will open banking benefit customers?

A: Open banking greatly enhanced consumer convenience. Consumers are able to use payment and money transfer services using a single application on their smartphones. For example, open banking makes the so-called “smart automatic transfer service” possible to which customers are able to link a number of different bank accounts to prevent – for instance – interest payment overdue even when the balances run low in the primary account.
It also offers a wider range of options for consumers. As open banking promotes further competition between banks and fintechs, consumers can choose among more diverse and specialized services – e.g. loans with preferential interest rates and free- of-charge money transfer services. Open banking is expected to further broaden consumer choices in synergy with MyData business, which will be introduced with the revised Credit Information Act taking effect in August this year.
The FSC’s long-term objective – beyond open banking – is open finance where the financial industry as a whole takes part in open innovation. As more and more players participate in open banking, both the scale and the depth of innovation in the financial industry will expand and accelerate, while bringing greater benefits to consumers.

Q: Are there any obstacles that banks may have to overcome to adopt open banking, or are there any challenges they have met so far?

A: It might be a difficult decision for banks to open up their payment networks and data to fintech firms as the new entrants in payment and money transfer services could erode banks’ customer base and profits. However, banks see the adoption of open banking as new opportunities for customer acquisition rather than a threat to their existing customer base. As big techs are making inroads into financial services with their own platforms, banks are seeking a transition to “banking as a platform” through open banking.
Opening up the payment networks to new entrants may cause concerns about security, safety and stability of the system, which could undermine the credibility of the financial industry as a whole. In this regard, the FSC, relevant public institutions and banks are working together to ensure the stable operation of open banking with security and safety measures in place. The Korea Financial Telecommunications & Clearings Institute (KFTC) has a 24-hour Fraud Detective System (FDS) to monitor fraudulent or suspicious transactions in real-time. Also, the Financial Security Institute conducts security checks on fintech firms when they apply for open banking.

The FSC has commissioned an empirical study on the impact of open banking on the banking sector including changes to customer base. The study is intended to analyze opportunities and challenges facing banks with the adoption of open banking. Based on the findings of the research, the FSC will work on measures to improve the open banking system, aimed at expanding the scope and functions of open banking services, creating synergies with data business, and strengthening security and consumer protection. After gathering the research outcomes and industry feedback, the government will work to further increase scalability and reliability of our open banking system, so that it could serve as a solid foundation for innovation in payment services.


Last updated: Apr. 6, 2020